World markets are in the red from Shanghai to Brazil ahead of the market open in New York on Friday. The fall is driven by the inability of oil prices to climb out of the downward trajectory the commodity has been in for nearly two years.
The Shanghai Composite gave back gains from its previous session today, closing trading down 3.55%, while Hong Kong's Hang Seng and Japan's Nikkei also closed trading down 1.5% and 0.54%, respectively. The German DAX is down 1.2%, the French CAC 40 is down 1.45%, and the UK's FTSE 100 is down 1.37% with about three hours left in trading before those markets close.
U.S. stock futures are also down sharply with Brent crude and West Texas oil prices both falling below the $30 per barrel threshold on Friday. Today's downward trajectory is a reversal from the strong session U.S. stocks had on Thursday, as the major indices saw their largest one-day gain of the new year. Crude prices are down about 20% since the beginning of the year as fears about increased supplies from Iran in an already over-flooded market weigh heavy on the mind of investors. Also adding negative pressure is the struggling Chinese economy which has officially entered a bear market, also falling over 20% since it reached a new high on Dec. 22.
Compounding the negative news, earnings season, which kicked off this week, has been a disappointment so far with results from S&P 500-listed companies expected to show a decline in profits for the third consecutive quarter. Profits are expected to have dropped by 7.2% in the fourth quarter, according to data compiled by Bloomberg, as revenue is also expected to fall by 3.1%.
In currency news, the U.S. dollar continues to climb as the decline in global markets push investors to the implied security of the U.S. currency. The dollar is climbing for the third consecutive week as oil prices continue to dwindle to multi-year lows. "The U.S. will remain the 'best house in a bad neighborhood' and will attract capital flows from abroad. We remain convinced U.S. dollar bulls. The secular U.S. dollar bull market has more legs," analysts at Morgan Stanley wrote in a note yesterday.
Thursday on "Mad Money," Action Alerts PLUS portfolio co-manager Jim Cramer pointed to several stocks that he called value traps. Value traps are companies that look cheap, but really aren't because the earnings estimates that make up the "E" in P/E come into question. He identified four such companies including Ensco (ESV), IBM (IBM), Freeport-McMoRan (FCX) and U.S. Steel (X).